Now's the Time to Buy Precious Metals
The precious metals complex is extremely oversold and nearing strong support. This coincides with extremely negative sentiment, which is bullish from a contrary perspective.
A few weeks ago we noted this major trendline support for the gold stocks. The market is about 6% from this major trendline which also coincides with the 62% retracement of the 2008 to 2011 cyclical bull.
Let’s zoom in on the short-term for Market Vectors Gold Miners ETF (NYSEARCA:GDX) as we prefer it to the NYSE Gold Bugs Index (INDEXNYSEGISS:HUI) above. We already know the major support trendline (for the sector) is nearby. The sector is approaching that support in an extreme oversold condition. GDX has shed 31% in the past five months and 18% in just 21 days. Moreover, note the three open gaps and how they’ve occurred following an already substantial decline. Hence, these gaps are a reflection of emotion which leads to panic. If we see a final gap then it is likely to be an exhaustion gap which would signal a reversal is imminent.
For gold and silver I show weekly candle charts as they give us an idea of the bigger picture. That picture is one of long consolidation after significant gains following the 2008 low. Recall the price action from 2009 to the 2011 peaks. Gold gained from $950 in the summer of 2009 to a peak of $1923 in the summer of 2011. In the same period silver went from $13 to $49. Folks, these are massive moves that take time to be digested. By "time" I mean quarters to years, not weeks or months. As we sometimes try to decipher every wiggle, it’s easy to forget that point.
Turning back to the present, pay attention to how the metals close this week and the next few weeks. There is major support at these levels and we expect to see the metals hold the ranges denoted on the chart.
The information on this website solely reflects the analysis of or opinion about the performance of securities and financial markets by the writers whose articles appear on the site. The views expressed by the writers are not necessarily the views of Minyanville Media, Inc. or members of its management. Nothing contained on the website is intended to constitute a recommendation or advice addressed to an individual investor or category of investors to purchase, sell or hold any security, or to take any action with respect to the prospective movement of the securities markets or to solicit the purchase or sale of any security. Any investment decisions must be made by the reader either individually or in consultation with his or her investment professional. Minyanville writers and staff may trade or hold positions in securities that are discussed in articles appearing on the website. Writers of articles are required to disclose whether they have a position in any stock or fund discussed in an article, but are not permitted to disclose the size or direction of the position. Nothing on this website is intended to solicit business of any kind for a writer's business or fund. Minyanville management and staff as well as contributing writers will not respond to emails or other communications requesting investment advice.
Copyright 2011 Minyanville Media, Inc. All Rights Reserved.